Managing Your Health Benefits

by Julia Paulus Ogilvie

All too quickly, that time of year is here again: renewal season for health insurance. As of late, it’s a time that fills most business owners with the dread of dealing with rising costs and questions about care coverage and staying in compliance with new regulations. What business owners can do to take control of this often-overwhelming situation is get in touch with an expert.

Insurance brokers are there with the goal of helping business owners determine the best option for themselves, their businesses and their employees while keeping them up to date on the latest changes for businesses their size. For the 2015-2016 season, brokers are seeing lower increases than expected for many small businesses with fewer than 10 employees.

“Actually, our clients’ experience for fourth-quarter renewals has been pretty positive this year – most renewals in single digits, many in low single digits,” says David Watson, managing partner of D.A. Watson & Co. – a Blue Chip Consortium LLC company.

Ted Ruzicka, president of the St. Louis Association of Health Underwriters and owner of Ruzicka Group Services, has also seen renewals that have been lower than expected. “The reason is due to certain provisions of the [Affordable Care Act’s] scheduled implementation being delayed,” he says.

For businesses with fewer than 50 employees, the same holds true, according to Ruzicka. “Additionally, any employer that has fewer than 50 employees is not required to offer health insurance, and there is no reporting or penalty,” he says.

If, however, a small firm is faced with a bigger-than-anticipated increase, Watson urges the owners to take a step back and look at their benefit package over a longer time horizon – three to five years out. To prepare, Watson suggests that small-business owners ask:

• Do they need health care benefits to attract and retain talent, given their competition?

• How does their benefit package, and medical benefits in particular, compare with their competition’s?

• Can they reduce the employer subsidy to reduce costs versus reducing benefits?

• Do they want to explore a different structure for the medical plan (e.g., health savings account, defined contribution or higher out-of-pocket costs for the employees)?

“The broker can be very helpful in providing answers and data in this sort of strategic analysis,” says Watson. “I think this ‘higher-altitude’ approach will help to make informed decisions about allocating capital for the business rather than just reacting to the cost increase.”

According to Me’Shel Riedel, benefit analyst and adviser with Crown Benefit Solutions, some small businesses with fewer than 50 employees that are already experiencing increases that are too large are choosing to opt out of offering insurance. “What some small groups are doing, especially lower-income groups, is assisting their employees in using healthcare.gov or individual health,” she says. “They are saying: ‘Here’s someone who can help you find a plan. This is a broker who deals with individual health plans.’ There are small companies, too, that because it has become so difficult are saying: ‘I am not dealing with this. I am not offering it.’”

For organizations with 50 to 100 employees, however, the impact is much greater. This is because they are required to meet a provision that does not apply to smaller groups, according to Ruzicka. “They are required to cover essential health benefits (EHB), which include items and services in 10 benefit categories, such as pediatric services, maternity and newborn care, prescription drugs, and preventive and wellness services, among others,” he says. If they don’t offer EHB coverage, they will be penalized.”

Despite this, as the employee population increases in size, the business owner will have more design choices and flexibility, according to Watson. “In the 11- to 50-employee space, all of the previously mentioned options are on the table, plus ‘self-funding’ of a portion of the risk versus being ‘fully insured,’” he says.

Ruzicka says self-funding is rising in popularity and can be a means of substantial savings to business owners. “Instead of having Blue Cross buy your network, pharmacy and stop-loss carrier and then marking it up, they are taken out of the equation,” he says. “The insurance carrier is replaced with a third party – a broker – who goes and contracts with HealthLink, Express Scripts and a stop-loss for catastrophic events. It’s like buying retail versus buying wholesale.”

Through self-funding, cost is kept down and transparency is increased. “Each company is provided with a utilization report on their group to help them understand how their benefits are being used and verify increases in cost,” says Ruzicka.

However, Watson cautions that given how self-funding works, groups should take a longer-term approach as they consider adopting this strategy. “They should be committed to the self-funding model for at least three years,” he says. “It will take that long, in most situations, to realize any potential savings via good claims experience and to get a real idea if this is an appropriate solution for them.”  

For businesses with 50 to 100 employees, there is potential for additional creative planning. “One of the options for this midsized market, 50 to 100 employees, is a true defined-contribution, ‘private exchange’ platform, where the employer commits a fixed dollar amount for each employee and the employee can choose from a variety of plan designs with different price points,” says Watson. “This is a technology-intensive offering that requires a third party capable of administering the multiple options. It has been slow to catch on, but I think as the technology catches up and becomes more affordable, the availability of this option will increase for the small and midsized markets.”

While approaching benefit planning strategically and using a broker as a trusted adviser, business owners should join the push for transparency in the health care system to improve future outcomes of care and cost, according to the experts.

“What you can do is push for more transparency in the health care system,” says Watson. “This is where the low-hanging fruit is. Consumers need to be able to see costs, compare medical outcomes, and evaluate choices before they can make informed, value-driven decisions. We buy health care in this country unlike anything else in our lives. We largely spend someone else’s money and make decisions based on someone else’s recommendations. We need to press hospitals, providers and our legislators for increased transparency as we move forward. If we can combine employees having some skin in the game with the ability to make informed decisions about their health care purchases, then I think we will get some traction on this cost problem.”